As the fall of 2009 approaches, three facts have become
abundantly clear: First, President Obama's economic stimulus bill
has failed to halt the steady loss of jobs or pull the economy out
of recession. Second, the federal budget deficit for 2009 will be a
modern record by any measure. And third, the Troubled Asset Relief
Program (TARP), originally intended to purchase "toxic assets" and
calm troubled credit markets, has veered wildly off course and
become an unrestrained government slush fund. When even the
President himself admits that federal deficits are unsustainable,
it is time to change course by reining in stimulus and TARP
spending.

More than 200 days ago, Congress passed the immense $787 billion
economic stimulus legislation, promising to "save or create at
least 3.5 million jobs."[1] This was an expensive, empty promise. At
9.7 percent, the unemployment rate stands at a 26-year high, and
2.4 millions jobs have been lost since President Obama signed the
stimulus into law.[2]

The Numbers in Context

According to the President's own optimistic budget projections,
the deficit will top $1 trillion through 2011, averaging almost 10
percent of gross domestic product (GDP). In comparison, throughout
the post-World War II era (1946-2008), federal deficits averaged
1.7 percent of GDP, and during the Bush Administration (2001-2008)
deficits averaged just 2 percent of GDP.[3]

As the White House Mid-Session Review states, "64 percent of the
current deficit is directly attributable to rescue and recovery
efforts and other countercyclical programs that were essential in
preventing a deeper and more costly recession."[4]

Shut Down the TARP

The TARP program was signed into law by former President Bush at
the height of the 2008 financial crisis. It was designed to provide
the Administration the financial heft necessary to supplement the
efforts of the Federal Reserve and various financial regulators
worldwide as they sought to stabilize financial markets.

At the time, many believed that financial institutions needed
government help in clearing "toxic assets," mainly mortgage-backed
securities, from their books. In the intervening months and for
whatever reasons, financial markets have achieved a remarkable
degree of stability. Though far from healthy, credit markets are
healing steadily. The need for TARP as a market stabilization tool
has passed.

While the legislation specifically restricted TARP assistance to
financial institutions, the Treasury Department rapidly identified
a variety of loopholes to dispense the money as it saw fit. Some
funds were used to recapitalize banks, and while some of that money
is being repaid, a great deal is still outstanding. The real abuse,
however, was that the Bush and Obama Administrations used $66.8
billion in TARP funds to help grease the bankruptcy filing of
General Motors, with another $14.3 billion to bailout Chrysler.
According to a Congressional Oversight Panel report issued
September 9, taxpayers are unlikely to recover their money from
these investments.[5]

The REBOUND Correction

The stimulus legislation has clearly failed to create the jobs
promised or to pull the economy out of recession as it piles on
unsustainable deficits. Meanwhile, the potential for TARP abuse is
high. It is time for a real change in direction.

Congressmen Tom Price (R-GA), Jim Jordan (R-OH), and Scott
Garrett (R-NJ) are trying to effect real change. They introduced
legislation to repeal the stimulus and recover TARP money. The
bill, "Reducing Barack Obama's Unsustainable Deficit ('Rebound')
Act" is unfortunately named, since President Bush, Congress, and
the current recession all played a role in creating the current
deficit. Even so, the Rebound Act contains some good ideas,
including:

Repealing the stimulus. The economy is in recession, but
the stimulus is hurting rather than helping. The bill would repeal
unobligated appropriations under the stimulus bill while
maintaining the tax relief and unemployment benefits. Such measures
would significantly reduce deficits in the near term and signal to
investors that the United States may be serious about fiscal
responsibility.

Stopping TARP from becoming a government slush fund. The
financial crisis is fading, and the need for TARP has passed. The
remaining danger is that TARP funds could continue to be used for
unintended political purposes and further increase the budget
deficit. The Rebound Act would put an end to TARP and force all
repayments to be used for debt reduction. In June 2009, the
Congressional Budget Office reported that "$142billion [had] yet to
be allocated to any existing or pending activity announced by the
Treasury."[6] By recovering the funds yet to be spent and
redirecting repayments toward debt reduction, the American
taxpayers could potentially save billions of dollars.

Time to Regain Control

The federal budget deficit is already unsustainable and
threatens to balloon further as Congress considers a multitude of
new spending initiatives from health care reform to highway
spending. This must stop. Congress should find the will to restrain
the growth in spending, and the ideas contained in the Rebound Act
would be an excellent place to start. These ideas represent an
acknowledgment of past mistakes and a serious first step toward
fiscal responsibility.

Stephen A. Keen is a Research
Assistant and J. D. Foster, Ph.D., is Norman B. Ture Senior
Fellow in the Economics of Fiscal Policy in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
Foundation.